The EFC helps federal, state and private institutions gauge your financial need versus that of another prospective financial aid applicant. A higher EFC means that you and/or your family will be required to finance part or all of your college expenses. The EFC also helps determine if you're eligible for a Federal Pell Grant.
The EFC helps determine if you're eligible for financial aid and how much of the maximum award amount will be available to you. The EFC is calculated each school year to accurately reflect your financial environment. If you're under age 25, your parents will be required to contribute if they are financially able, so the EFC can keep you from attending college if your parents are not cooperative.
The EFC can reduce only the amount of grants and private scholarships; federal and private loans are not affected by your EFC. Federal loans come with low interest rates that can be deferred and are an excellent alternative if your EFC makes you ineligible for grant money.
The EFC is determined by your adjusted gross income on your W-2 forms for the previous year. For example, if you were applying for federal student aid for the 2008-09 school year, you would use the adjusted gross income for your wages in 2007. This income, plus your parents' income if you're under 25, is used to determine the amount, if any, you're expected to contribute to your education.
You're not required to file a tax return to receive student aid. In fact, you're not required to take your income information directly from a W-2. The adjusted income simply must be correct as determined by your W-4 worksheet. So you may contact your employer and simply request your wage information over the phone, then use that data on a W-4 form to get your adjusted income for use with the FAFSA.